Ways the state can fix its finances

Opinion: Columns

Tuesday, May 20th, 2014 10:00 PM

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By Al Popwits

A recent Sunday front-page article in the Chicago Tribune described row upon row of brand new state police squad cars parked in the state capital's fairgrounds. These vehicles were delivered last year but not put into service. The reason was that the state lacked the funds to purchase and install police lights, two-way radios, and computers. This latest expose highlights the state's ongoing fiscal crises.

The crisis is difficult to understand in view of the fact that:

1) Illinois ranks 5th nationally with a gross state product (GSP) in excess of $644 billion.

2) The International Monetary Fund ranked Illinois the 19th largest economy in the world, eclipsing Poland, Belgium, Sweden, and Saudi Arabia to mention just a few.

3) Illinois ranked only 43rd in state spending as a percentage of GSP among the states (obviously Illinois is not a spendthrift state).

The question is: "If Illinois is so rich, why can't it provide its citizens with such basic security services as state squad cars?" According to the Tribune article, the answer lies in the state's ongoing budget problems.

There are numerous solutions to the state's fiscal dilemma, but the state's legislators have as yet refused to embrace any of them. A combination of two or more of the following would greatly alleviate the crises:

1) End the retailers' concession

2) Opt out of the domestic production deduction

3) A financial transaction tax

4) A progressive income tax

5) Tax services

6) Tax annuities

7) End state corporate income tax giveaways

To cover their administrative costs, retailers are allowed to keep 1.75% of sales tax revenue collected from customers on behalf of the state. Given the advances in computer technology, collecting state sales taxes is no longer a burden to the retailer but rather an automated process. The state has lost more than $1 billion in sales taxes since the year 2000.

In 2004, the federal government created a tax break known as the "domestic production deduction." Because Illinois bases its tax code on the federal tax system, the deduction carried over to our state. However, states are not required to allow the tax break, so Illinois could have opted out, but it did not do so. In 2011, Illinois lost $103 million in sales tax revenue.

It has been estimated that a $1 financial transaction tax on each contract traded at the Chicago Mercantile Exchange (regardless of size) would generate $6 billion in revenue.

According to the Center for Tax and Budget Accountability, the current Illinois tax system places the greatest burden on low- and middle-income families. In fact Illinois has the third highest tax burden for low-income families of all 50 states. The current regressive flat tax is unfair because it does not impose a tax burden that corresponds with an ability to pay. However, a progressive state income tax automatically increases or decreases if a person receives a raise or loses his job. In addition, it would raise at least $2 billion and lower the state income taxes of 94% of Illinois taxpayers.

"In 2010 Illinois consumers spent twice as much on services as on goods. This shift in the fundamentals of the economy has changed the relationship between consumption and tax revenue. Changes in personal consumption have resulted in the Illinois sales tax covering a decreasing proportion of consumption expenditures." (Chicago Metropolitan Agency for Planning). Illinois taxes just 17 services, fewer than only three other states, and well below the national average of 56 (neighboring Iowa taxes 94 services).

Illinois is one of 13 states that exempts annuities (pensions) and Social Security benefits from taxation. This costs the state almost $1 billion annually, and is a tax break that Illinois can no longer afford.

@joe-The criticism directed at Mr Popowits is not meant to be personal, but merely identifies ulterior motives from one side of the argument. The pensioner has a vested interest in levying new taxes because they are not taxed. They have no skin in any tax hike solution...we do. So I think it's important for the reader to have full disclosure on his situation. But this problem cannot be solved by future pensioners alone. All pensioners must share, from retirees to 5 years to go to 25 years to go.

joe from south oak park

Posted: May 21st, 2014 10:44 AM

I'd rather see the state cut the budget than increase taxes, but find it interesting that most of the criticism here consists of ad hominem attacks on Mr Popwits pension. pension concerns are a huger problem, however rather than cutting existing pensions (which will likely be found as unconstitutional causing the state even more expense in a suit) maybe the solution should be to change future pension agreements, and cut spending. did we really need >$670k copper doors on the capital building?

muntz

Posted: May 21st, 2014 10:27 AM

And Mr Popowits will continue to draw more than his fair share for the rest of his life. If he lives another 10 years (I hope he lives a long and healthy life), that will be another ONE MILLION DOLLARS withdrawn beyond his entitlement that the taxpayer has to fund. One less new teacher, one less new police officer. And he is just one of hundreds of thousands of examples of why the pension system is quickly approaching its inevitable collapse. The solution resides amongst the pensioners alone.

muntz

Posted: May 21st, 2014 10:20 AM

...pensioners withdraw far more than what is contributed on their behalf. According to the BGA website, Mr Popowits collects a $90K pension this year...20 years AFTER his retirement date. Let's say his pension started at $60K in 1993 and increased 2% per year. He would have withdrawn $1.5M to date. Is it safe to assume this covers all his contributions throughout his career? Let's say his avg yearly contribution over his 30 year career is $10K (generous). Has that $300K grown to $1.5M? Doubtful.

Pete

Posted: May 21st, 2014 10:13 AM

Wow- Don Harmon couldn't of written a better piece. I get it now if we could tax the right people and businesses like the CME this would allow us to support a huge bureaucracy and maintain pension and benefits- truly brilliant!

muntz

Posted: May 21st, 2014 9:56 AM

It took Mr Popowits multiple opinion pieces and 580+ words into this one to finally admit it might be a good idea to tax pensions. How about this...exempt taxes on all retirement income to the SS max and tax any retirement income above and beyond that limit. This would limit the impact on the folks scraping by on SS alone. It's a start, but unfortunately not enough because...

Geez Al

Posted: May 20th, 2014 10:54 PM

You know those teachers that got the 40% bumps in OP?Each sweetheart deal translates into an additional 600k -unfunded- magic money that no one paid for, least of all the teachers retiring at 58. I can't hear you until you address the abuses on our community.

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